james gatto
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Pillsbury Winthrop Shaw Pittman LLP
Gamblification!
Interaction between Social Games and Online Gambling
James GattoLeader, Social Media & Games Team
Social Gambling & Gaming SummitDecember 10, 2013
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2 | Gamblification!
GAMBLIFICATION
High Reward High Risk
Convicted on 103 of 104 Counts on Internet Café Sweepstakes
Faces Up to 30 Years in Prison
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Enforcements are Increasing
Internet Sweepstakes Enforcements – FL, OH, CA, NC ….
Internet Gambling Arrests
Prediction Markets – Intrade
And the list goes on!
3 | Gamblification!
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Key Takeaways
The law lags innovative technology/business models
Recognize there is great risk … including jail
Understand that there is subjectivity in the law
Details make a difference
May not get certainty, but can certainly minimize riskif …..
Get knowledgeable counsel and follow advice
4 | Gamblification!
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Social Media/Games Meets Gambling Mechanics
5 | Gamblification!
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Range of Activities
Illegal gambling
Lotteries
Legal, regulated gambling
Non-real money casino games
Contests/sweepstakes business models
Win stuff in games/mini-games
Non-real money prediction markets
Gamblification
6 | Gamblification!
Not-gamblification
Gamblification
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Casinos
Gambling Technology Companies (IGT, Aristocrat, SG, etc.)
Social Games Companies
Legal Online Gambling Operators (off-shore)
Platform Providers
Overview of Competitive Landscape
7 | Gamblification!
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Caesar’s – Buffalo Studios and Playtika
IGT – Doubledown
Bally Technologies - SHFL Entertainment
Sample Acquisitions
8 | Gamblification!
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9 | Gamblification!
Legal Issues
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Where there is rapid innovation…there are significant patent filings
Gamblification is no exception!
Patents
10 | Gamblification!
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What CAN be patented?
Short answer:
If you can build it, you can patent it!
Features
Functions
Processes
Business methods
More
11 | Gamblification!
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What CANNOT be patented?
The only three categories the Supreme Court has ruled to be not patentable:
Abstract Ideas
Laws of Nature
Natural Phenomena
What these exclusions have in common is all are not tangible
12 | Gamblification!
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Entire Classifications Related to Aspects of Gamblification
US Patent Office
13 | Gamblification!
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US PATENT CLASSIFICATIONS
Sub-class Title
269 Lotto or bingo type
270 With attached pieces
271 Alignment games (e.g., tic-tac-toe, go-moko)
272 Word, sentence, or equation forming (e.g., SCRABBLE, hangman)
273 Memory or matching games (e.g., concentration)
274 Betting or wagering board (e.g., casino)
Class: 273 Amusement Devices: Games
14 | Gamblification!
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US PATENT CLASSIFICATIONS
Sub-class Title
9 In a game requiring strategy or problem solving by a participant (e.g., problem eliciting response, puzzle, etc.)
10 With chance element or event (e.g., backgammon, Scrabble, etc.)
11 Card- or tile-type (e.g., bridge, dominoes, etc.)
12 Ultimate outcome dependent upon summation of plural card or tile values (e.g., blackjack, etc.)
13 Ultimate outcome dependent upon relative odds of a card or tile combination (e.g., poker, etc.)
16 In a game of chance (e.g., lot, etc.)
17 Lot match or lot combination (e.g., roulette, lottery, etc.)
18 Plural lots (e.g., keno, etc.)
19 Plural matches create pattern (e.g., bingo, etc.)
20 Lot-to-lot combination (e.g., slot machine, etc.)
21 Having means to alter combination probability
22 Lot generator (e.g., card distribution, simulated dice, random number generator, etc.)
25 Credit/debit monitoring or manipulation (e.g., game entry, betting, prize level, etc.)
Class: 463 Amusement Devices: Games
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US PATENT CLASSIFICATIONS
Sub-class Title
90 Specific Application, Apparatus or Process
91 Contest or contestant analysis, management, or monitoring (e.g., statistical analysis, handicapping, scoring)
92 Scoring
93 Probability determination or handicapping
Class: 700 Data processing
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US PATENT CLASSIFICATIONS
Sub-class Title
14.1 Discount or incentive (e.g., coupon, rebate, offer, upsale, etc.)
14.11 Trade or exchange of a good or service for an incentive
14.12 Incentive awarded or redeemed in connection with the playing of a video game
14.13 Determining discount or incentive effectiveness
14.14 Chance discount or incentive
14.16 Referral award system
319 Social networking
Class: 705 Data processing: financial, business practice, management, or cost/price determination
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US PATENT CLASSIFICATIONS
Sub-class Title
700 Operator Interface (e.g., graphical user interface)
757 Virtual 3D environment
848 Interface represented by 3D space
850 Navigation within 3D space
851 On-screen navigation control
Class: 715 Data processing: presentation processing of document, operator interface processing, and screen saver display processing
18 | Gamblification!
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US PATENT CLASSIFICATIONS
Sub-class Title
23 Electronic transfer of funds for an entertainment, amusement, or gambling application
Class: 902 Electronic funds transfer
19 | Gamblification!
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Common Misconceptions | Patents Take Too Long
Misconceptions
Getting a patent takes too long
The games industry moves so quickly that patents are obsolete before they issue
Truth
Can take 2-5 years to obtain a patent under normal process
Properly drafted patents apply to more than one game
Innovative features, functions, and mechanics typically last through several generations of games within a genre
Track I procedure can cut time to 6-9 months
20 | Gamblification!
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Misconception
Patents are only valuable if they are enforced
Common Misconceptions | Only Valuable if Enforced
Truth
Patents have many types of value – offensive and defensive
Patents can act as a deterrent for competitors with patents
Filing patent applications can make obtaining patents harder for competitors
Patents are assets that add to the overall value of a company
New patent rules enhance defensive value of patents (First to File)
21 | Gamblification!
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How do you ensure that you stay on the legal side of things?
Comply with U.S. Federal and State Law
and Foreign Laws
Legal Issues with Gamblification
22 | Gamblification!
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Most federal laws do not define gambling
Most federal statutes facilitate enforcement against activities that violate state (or federal) gambling and illegal lottery laws
except sports betting
Overview of US Federal Laws
23 | Gamblification!
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UIGEAprohibits businesses from knowingly accepting payments in connection with the participation of another person in a bet or wager that involves the use of the Internet and that is unlawful under any federal or state law.
Targets financial institutions/payment processors
Overview of Federal Laws
24 | Gamblification!
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UIGEA
Does Bitcoin get around this?
No payment processor?
Even if so, need to address state law
Overview of Federal Laws
25 | Gamblification!
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Important UIGEA exclusions for Gamblification
participation in any game or contest in which participants do not stake or risk anything of value other than:
i.personal efforts of the participants in playing the game or contest or obtaining access to the Internet; or
ii.points or credits that the sponsor of the game or contest provides to participants free of charge and that can be used or redeemed only for participation in games or contests offered by the sponsor
The points or credits exclusion may cover various forms of virtual currency
But still need to consider state law
Overview of Federal Laws
26 | Gamblification!
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State Lottery/Gambling Laws
Most substantive law is state law
Most states have laws prohibiting illegal lotteries
Many have separate anti-gambling laws
Many state laws were written pre-Internet
Some states are now crafting specific legislation to address online gambling
Overview of State Laws
27 | Gamblification!
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The Formula for Gambling
28 | Gamblification!
Consideration + Chance + Prize = Illegal
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The Formula for Gambling
29 | Gamblification!
Typical scenario
User pays money to participate in an activity
Receives a chance to win
A cash prize or valuable tangible goods
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Remove one of the three components
The Formula for Gamblification
30 | Gamblification!
Remove consideration/payment: prize + chance
Remove chance: prize + consideration
Remove prize: consideration + chance
(who would pay for a chance to win nothing of value?)
= Sweepstakes
= skill-based contest
= ???
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not every time a user pays money
is there the type of consideration that triggers gambling
money is not the only type of consideration that may be relevant (consideration can be non-monetary)
Consideration
31 | Gamblification!
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Examples: Product Promotion Sweepstakes
McDonald's Monopoly Game
Buy Big Mac/fires; get prize token for chance to win $$$
Illegal? – pay, chance to win, prize
No! – because free AMOE (no purchase necessary)
Consideration?
32 | Gamblification!
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Get chance to win by sending text
Illegal?
Yes (in some states because premium text charge)
Consideration?
33 | Gamblification!
Examples: Text to Win Sweepstakes
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Examples: Fantasy sports
pay entry fee
for chance to win league
monetary prize
Illegal gambling?
No – payment for services/predetermined prize not based feesHumphries v. Viacom (NJ)
Consideration?
34 | Gamblification!
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Some states:
Predominantly skill = skill even if some chance
Material degree of chance
Any chance
Pure chance
Chance vs. Skill
35 | Gamblification!
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Prize must be something of value
Zynga poker - buy chips for real money, earn chips, but can not cash out
Man convicted in UK for stealing $12 million Zynga poker chips
Virtual goods usable only in game = value?
Prize
36 | Gamblification!
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Impact of Virtual Goods/Currency
37 | Gamblification!
When virtual goods or currencies are used, determining if there is a payment or prize can be more complicated
Does virtual good/currency have value?
How did the player acquired the virtual good/currency?
What can the player do with the virtual good/ currency?
With whom can the virtual currency be used?
Is it a “dual currency” model?
Is there a secondary market?
Check out our paper: Overview of Legal Issues with Virtual Currency (www.socialgameslaw.com)
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Secondary Markets
38 | Gamblification!
Online markets where virtual goods, virtual currency, accounts, avatars, etc. are bought, sold, traded
Most contravene the terms of service and can result in termination of user account
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Impact of Second Markets on Value
39 | Gamblification!
Do Secondary Markets create “value” for virtual goods?
What if you can sell Zynga poker chips for real money?
Could this impact a lottery/gambling analysis?
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Impact of Secondary Markets on Value?
40 | Gamblification!
NCAA Lottery Case
People interested in NCAA Final Four tickets sent in $150 per ticket and $6 handling fee (consideration)
Winners determined “randomly” (chance)
For losers, NCAA returned the $150 but kept the $6
For winners, NCAA kept the $150 + the $6
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Impact of Secondary Markets on Value?
41 | Gamblification!
NCAA Lottery Case
Illegal Lottery?
Consideration = ($6)?
Chance (random draw)
Prize (ticket that can be scalped for multiples of face value)?
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Impact of Secondary Markets on Value
42 | Gamblification!
NCAA Lottery Case
Court concluded the tickets were not prizes
NCAA created the primary market for the tickets, and the value realized by the NCAA is in fact the face value of the tickets
But for the NCAA issuing tickets to one of its events, there could never be a secondary market
Mere speculation that the tickets would have an increased value in a secondary market
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Impact of Secondary Markets on Value
43 | Gamblification!
Key Takeaway from NCAA Lottery Case?
An item is not a prize in a lottery if no market exists for the item before it is offered by the person running the purported lottery
Beneficial ruling for social media and game companies that issue virtual goods or currency in certain gamblification models
Caveat: these facts, this court; others facts/states might differ
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44 | Gamblification!
Internet Sweepstakes Cafés
pay for time
chance to win
free AMOE
like McDonald’s Monopoly Sweepstakes
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Kompu Gacha
45 | Gamblification!
Creative monetization model Could only win virtual goods – no cash out! Declared illegal – Japanese FTC Several major game companies Stocks dropped 20% Targeted kids? No fixed odds/consumer complaints?
If consumers complain – regulators will focusJust cause others are doing it … doesn’t make it legal
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Check out our blog for more on gamblification
46 | Gamblification!
www.socialgameslaw.com
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James GattoPillsbury Winthrop Shaw Pittman LLPSocial Media & Games Team Leader
Tel: 703-770-77541650 Tysons Boulevard, McLean, VA 22102-4856
Email: [email protected]
www.pillsburylaw.com/socialmedia
Questions?
47 | Gamblification!